A vehicle co-signer is not the only person responsible for making payments on a vehicle – in some cases, she's not even the primary person responsible for making the payments (depending on your agreement). When a co-signer of a loan dies, your situation (as the other payor) might not change at all. In some cases, you might need another co-signer depending on your original agreement and/or if your financial situation has worsened. Reviewing what happens if a co-signer dies before a vehicle loan ends will help you make sure you keep making your payments and keep your vehicle.
What Is a Co-Signer on a Car?
A co-signer on any kind of loan, lease, credit card or other financial product is a person who agrees to make the payments on the contract if the other party doesn't. Parents often co-sign for their children, for example. This helps the kids build credit because even if mom or dad makes all the payments, the child gets credit for the on-time payments and for having an installment loan on his credit report.
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In many cases, a co-signer never pays a dime of the contract – he's just on the loan to let the lender know the loan is a safer deal. A co-signer is on the hook for the loan if the other party bails, however. The co-signer might be the primary owner of the vehicle and/or be responsible for insuring it depending on the loan contract.
Review the Original Loan Contract
In most cases, when an auto loan co-signer dies, the payment responsibility simply shifts to the other borrower, explains Bankrate. That means you won't need to get another co-signer. This also shifts all of the responsibility to you. For example, if you decide to walk away or can't make payments on a car loan when your co-signer is alive, she has to make the rest of the payments. She can sue you if you breached your agreement, but the loan company might not come after you as long as the payments keep coming from your co-signer.
Find out if the loan will continue as is if your co-signer dies or if you'll need to get another co-signer or return the vehicle. If you have a car lease, which is not a loan but has some similarities, you might be able to terminate the lease early.
Call Your Insurance Company
Find out how the death of your co-signer affects your insurance on the vehicle. For example, your loan agreement might have included a force-placed insurance policy provision, explains the Consumer Financial Protection Bureau. Make sure your insurance policy is covering the car, that your insurance company agrees to insure the car with you as the only owner/payor and that the loan company is OK with you being the only insured party.
Change the Paperwork
If your co-signer has made payments on the car, her heirs or estate might want the car classified as her asset or partly her asset. That means that you won't own it or can't sell it without permission of her estate or heir(s). If you do, you might have to give your co-signer's estate part of the sale price. This should all have been spelled out in your written agreement with your co-signer.
The sooner you can transfer the title for the vehicle to your name (only), the less chance anyone else will be able to claim all or part of it in the future. Make sure you work with an attorney before you change the title to avoid any legal issues. If you are dealing with a car lease, you might have trouble trying to extend the lease without a co-signer, so look into that sooner than later.